Having a clear idea of what you need to consider when taking a lease can be a big help in progressing lease negotiations efficiently.
Here are some questions to ask yourself before taking a lease.
1. What exactly are you getting?
Usually a lease plan should be included – check the boundaries of the property carefully. If you’re going to need access to shared facilities outside of these boundaries – eg office meeting rooms or car parks – check that additional rights to use these have been included.
2. Can you afford the rent?
This should be more straightforward to predict if the lease has a fixed rent for the whole term, but if there is a rent review, you’ll need to check that you can afford the increase. A stepped or capped rent review is always going to be easier to plan for than an open-ended one. Check comparables in the area (or speak to a property agent) to see whether the rent you are being charged is reasonable, bearing in mind the duty on charity trustees to use the charity’s assets reasonably and responsibly.
3. How long are you committed for?
If the lease is for five years, but your funding contract is only for three, a break clause could protect you from remaining tied into a lease you can no longer afford. Similarly, if there’s going to be an open-ended rent review, you could request a break clause to coincide with this so that you can end the lease if the rent becomes unaffordable.
4. Are there any extra charges?
Unless your lease relates to a whole standalone building, it is likely that a service charge will be payable. Check carefully that you are happy with what this covers – for example, if you are a ground floor tenant, should you be contributing towards lift repairs? A fixed or capped service charge is easiest to budget for, and will protect you from any nasty surprises.
5. Can you use the property in the way you need to?
Almost every lease will specify a ‘permitted use’ – make sure that this is defined broadly enough to allow you to do everything you need. Regardless of what the lease says, you also need to check for any planning restrictions on the property’s use.
6. Can you share the property with third parties?
Most leases as standard prohibit ‘sharing occupation’ – this would include for example hiring out space to other local groups when you’re not using it. If this is something you plan on doing, or would like the flexibility to do in the future, make sure the lease allows it.
7. Can you make any alterations you require to the property?
Most leases only allow alterations with landlord’s prior consent. If you need to carry out fit-out works, provide the landlord with your plans upfront so that permission can be granted at the same time as the lease. You might also consider requesting a rent-free period so that you’re not paying rent while you carry out the works.
8. What repairs and maintenance will you need to carry out?
Check how responsibility for repairs and maintenance is divided up under the lease – if you are to be responsible for structural parts, consider commissioning a survey so that you’re aware of any issues. Ensure that the standard you are required to keep the property in is not higher than that in which you are taking it on - consider commissioning a schedule of condition to record any existing disrepair.
9. Who is responsible for health and safety compliance?
Usually tenants will be responsible for compliance in relation to the areas within their control. It is important to be aware of this so that you can carry out any necessary risk assessments at the earliest possible stage.
10. Who will insure the building?
This will usually be the landlord, with the tenant required to reimburse them for the cost of the premium. However, certain items such as windows will often be excluded from the landlord’s insurance. You’ll need to insure your contents, and take out any other necessary insurance such as public liability.
Of course none of this is a substitute for professional advice on heads of terms negotiations and professional drafting of the lease.
For that, please get in touch!